Chelsea ex-housing chief may have misused $1.5 million

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A scathing new audit of Chelsea Housing Authority reveals that disgraced housing director Michael E. McLaughlin may have misused as much as $1.5 million in federal funds set aside for the low-income people the authority serves.

In its report, the independent auditing firm Hurley O’Neill & Company highlights a series of questionable expenditures that suggest McLaughlin was raiding funds that were supposed to be used to maintain the buildings to pay everyday expenses, and subsidizing higher salaries for himself and key lieutenants.

The report, which reviews the authority’s accounts for 2011, is scheduled to be discussed Thursday by the Chelsea Housing Authority board of commissioners.

“It appears there’s been substantial wrongdoing, and I trust the federal and state authorities will bring their investigations to a just conclusion,” said Thomas Standish, who took over as board chairman after the entire previous board resigned last year — along with McLaughlin — under pressure from Governor Deval Patrick.

“We are going to make things right by the public,” he said, calling the audit an important step toward that goal. “We will put in a program that safeguards the taxpayers’ money.”

Under federal guidelines, agencies that receive federal funding must hire independent firms to produce annual audits for government review. During most of McLaughlin’s 10-year tenure at the housing authority, audits were submitted by Martin Scafidi, a certified public accountant whose recent reports contained little that was critical of the Chelsea agency.

‘We will put in a program that safeguards the taxpayers’ money.’

Scafidi, in an interview last year, said he was shocked when revelations of McLaughlin’s outsize salary were disclosed in the Globe. He said that he was unaware of McLaughlin’s salary, perhaps the highest of any housing official in the country, and that he felt “betrayed” by the former executive director. Scafidi did not return a call placed to his office Wednesday.

The 2011 audit, conducted by a new firm selected by the staff and without McLaughlin’s participation as chief, has been highly anticipated.

In its tally of questionable costs, Hurley O’Neill describes McLaughlin as inappropriately charging routine expenses such as maintenance, trash removal, pest control, computer software, and bank fees to capital accounts that are typically reserved for new roofs, kitchens, bathrooms, windows and doors, and security systems.

By doing so, the authority risked “the physical welfare of its Federal public housing developments,” the report says, though it itemizes no planned improvements left undone.

“Necessary routine expenses, that should have been paid from operating funds, were paid from capital funds,” Michael Guyder, Hurley O’Neill audit chief, said in an interview.

“This practice inappropriately freed up cash flows from operations, which could then be used to pay expenses such as salaries and benefits,” he said. “This practice may have resulted in needed capital improvements not being completed.”

Last year, approximately $364,000 in operational costs were charged to capital accounts, including $101,294 for materials and supplies, $76,874 for general maintenance, and $74,052 for trash removal.

Much of what was done at the Chelsea Housing Authority was based on “budgetary and funding expediency rather than operational reality and sound business practices,” the report says.

The report suggests that some amount may be payable back to the US Department of Housing and Urban Development, which funded the capital accounts.

A HUD spokesman said the federal agency will review the report once it is submitted “and take appropriate actions.”

Among other expenses questioned by the firm were $398,100 in salary paid to McLaughlin and $134,362 paid on his behalf by the Chelsea housing authority for Medicare and other employer-paid expenses in 2011 before he resigned. (Besides the federal funds, McLaughlin was also paid approximately $37,000 from state funds).

McLaughlin’s salary receipts in 2011 include $136,114 in pay for about 33 weeks of vacation he said he had accrued since becoming executive director but did not use.

Besides unused vacation time, McLaughlin also claimed $190,818 for unused sick time and $8,065 for unused personal time, but state and federal housing officials stopped payment on those two checks, which McLaughlin cosigned in the last hours before leaving his office. The check for unused vacation time, however, had already gone through.

The audit found no documentary backing for those claims for unused time. Management “did not have a mechanism for tracking the sick, vacation, and personal time earned and used by the former executive director,” the report says. “As a result, the authority cannot quantify amounts currently due or previously paid to the prior executive director’’ for such time.

The report faulted the previous board for approving salary increases for McLaughlin “that were not reasonable in comparison” to other salaries. McLaughlin was hired in 2000 at a salary of less than $80,000, but enjoyed enough raises to more than quadruple his pay before resigning in 2011.

The audit also questions $225,894 in salaries and benefits paid to three McLaughlin underlings. Guyder said there was no documentation in the Chelsea Housing Authority providing a basis for the salaries paid to those three employees.

The Hurley O’Neill report covers only 2011, but, “We will discuss with HUD the use of a forensic accountant to review prior year expenses,” the report says.One Chelsea housing board member expressed deep concern about what might be revealed.

“Since the Housing Authority did not have sources of revenue to support the kind of inappropriately lavish spending on administrator salaries and benefits that we have seen, it raises questions in my mind about practices that must have gone on to support this obscene spending,” said Barbara Salisbury, a board member.